World Class Payments

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World Class Payments

A report on how consumers around

the world make payments


Contents

Foreword 3

World Class Payments in the UK 4

Consumer protection in different countries 6

Cards 6

Cash 16

Automated payments 18

Cheques 24

Mobile payments 28

Foreword

Our latest report shows that you don’t need to look very

far afield to realise that customers in the UK enjoy a degree

of choice and protection in the way they pay that you’d be

hard pressed to find anywhere else in the world.

Even countries like the USA, that

you’d expect to be very similar to

us, are years behind in some areas.

For instance the USA is still looking

to introduce something like Faster

Payments, which has enabled

almost instantaneous internet and

mobile payments in the UK since

2008, and it is still in the early

stages of introducing the global

chip and PIN technology, which

became the norm in the UK back

in 2006. With the population of

the USA almost five times as large

as the UK, the size and complexity

of its payments infrastructure

can sometimes hinder innovation,

although there is change afoot:

Vocalink – the UK’s payment

infrastructure provider has recently

signed an agreement to deliver

services for The Clearing House in

the USA.

Closer to home Denmark has

moved one step closer to becoming

the world’s first cashless society, as

its government proposes scrapping

the obligation for retailers to accept

cash. The Danish government has

said that as of this year, retailers

may no longer be legally bound to

accept cash payments.

At present, it’s hard to imagine the

UK taking any steps to move towards

a cashless society, given that despite

the boom in the use of cards, digital

and remote payments, even in ten

years’ time cash payments are still

expected to make up a third of all

payments.

Without a doubt the UK can

claim to be world class when it

comes to the range of payments

customers can choose to use.

However ironically some of the

most cutting edge innovations have

happened in emerging markets

where retail banking infrastructure

is behind the UK’s, and customers

without bank accounts in these

areas have been quick to embrace

technology, particularly mobiles.

The growth of the middle class

and expanded consumer activity

in emerging markets represents

vast untapped opportunities

for payment service providers,

particularly those providing mobile

money applications, because mobile

penetration in these regions tends

to be high. For instance, Kenya

has made the leap from being a

predominately cash-based culture

to one that makes extensive use of

mobile payments thanks to M-Pesa.

This service enables customers to

transfer money using only a mobile

number without either sender

or recipient needing to have a

bank account. In fact, a quarter of

Kenya’s GNP flows through M-Pesa.

By comparison, the UK’s consumer

appetite for a service like M-Pesa

is lacking because consumers

already enjoy a much wider choice

of existing payment methods via

their bank account.

Although the UK has a great track

record of leading where others

follow, with both contactless

payments and Paym being recent

highlights, to remain central on

the global payments stage the

UK payments industry needs to

focus on the future and on what

customers need next.

In our recently published World

Class Payments Report we took

an evidence-based approach

to understand what different

customers want from payments

and what the UK needs to provide

in order to stay world class.

As part of this work we track

what’s going on in the world so

we can ensure that UK customers

benefit from the best possible

payment services. This report

provides an overview of how

different payment methods are

used (or not) in key countries

in Europe and around the world

highlighting some interesting

differences in the way we pay in

the UK.

Adrian Buckle

Chief Economist, Payments UK

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The World Class Payments project identified thirteen

‘payment capabilities’ that customers want and need

from their payments

World Class Payments in the UK

Whether you’re a fan of football, rugby or cricket, you

will have probably had this sporting debate at some stage

in your life – which players would make up your dream

team? Normally heated, these debates very rarely end in a

team consisting of players all from one place, with the best

players in each position often spread across a number of

countries and continents.

When Payments UK looked at how

the UK payments infrastructure

compares internationally we

found ourselves in a very similar

position. Our work to identify

what customers need and want if

payments in the UK are to remain

world class led us to identify

thirteen core capabilities, which will

build on the UK’s existing strengths.

Although our focus is on the UK,

it made sense to compare each

core capability to global markets.

In doing so we identified many

countries that specialized in singular

or specific capabilities – but very

few could be considered world

leading across the entire spectrum.

There are a variety of reasons that

cause this specialisation to occur.

Similar to many sporting teams,

payments infrastructures develop

over time, often combining new,

emerging products and technologies

with older legacy systems, tactics

and approaches. Strategically,

nations have to balance the

desire for short-term, pragmatic

improvements with the complex

process of guiding all the moving

parts in a way that optimizes longterm

gains. Greenfield approaches

are rare, and with a plethora of

stakeholders including banks,

regulators and schemes, the ability

to achieve a consensus that benefits

all parties is almost a capability

within itself. Once you add the

nuances of each international

market into this mix, you have a

perfect cocktail for creating global

diversification and variety when

implementing each capability.

Payments UK has taken the lead

to identify what exactly it means

to be world class in each of 13

identified ‘payment capabilities’

that customers have told us they

want. Looking at other countries

across the globe and comparing

the UK’s position has helped us

reach this point. Yet, like any

heated debate over creating a

balanced team of the world’s best

athletes whose skills and abilities

would complement each other,

only a deeper understanding of

the nuances in payments will help

us understand how best practice

across the world can be applied

to our domestic market. When

researching these examples, we

considered the unique attributes to

each national market, ensuring we

could understand if factors such as

customer needs and experiences,

industry competition, supporting

infrastructure, political priorities and

market size were similar enough for

us to tailor and build upon these

approaches in the UK market.

This work is ongoing, but as a first

step, last summer we published our

first World Class Payments (WCP)

report in which we set out the 13

core payments capabilities we

believe are needed for a payments

environment to be world class. We

also identified four priorities we

believe should be the initial focus

to help the UK achieve its vision.

We are progressing this work and

plan to provide an update this year.

This report provides an insight

into how much variation exists

in consumer payment behaviour

around the world. Undoubtedly

some of the variation is driven by

the costs of using payments which

this report doesn’t cover, but what

it highlights is the high level of

choice, convenience and protection

UK consumers enjoy compared to

many others around the world.

Payments UK’s World

Class Payments project

was set up to identify the

key characteristics and

capabilities required for the

UK’s payments landscape

to continue to be world

class. We’ve taken an

evidence based approach

to get to grips with what

customers want from their

payments. Our goal is to

support the industry and its

regulators’ efforts to deliver

the very best outcomes for

consumers, businesses and

the public sector.

Ensure existing payment

services are accessible via

any new standard, allowing

changes to be made at the

PSPs’ (Payment Service

Provider) pace.

Realise the potential

benefits in greater

sharing of identity and

fraud data to improve

customer experiences and

prevent fraud.

Separate out clearing and

settlement, to allow flexible

options for PSPs (Payment

Service Providers). This

will enable them to select

the best fit for their

payments models.

Payment

Services

Co-existence

Cross-industry

sharing of

identity and

fraud information

Flexible

Settlement

Ensure that the industry

switching service keeps

pace with customer

expectations in terms of

timing and the breadth

of features included in the

switch process.

Real-time balance

information available to

customers by improving

how transactions are

applied to accounts.

Switching

Accounts

Real-time

Balances

Foundation Capabilities

Common Access

to the Payments

Infrastructure

Common

Standards

Real-time

Payments

24x7

Common, open and

transparent standards

that enable interoperability,

whilst simplifying initial

access and providing a base for

innovative payments products to

be built on.

Standard interface enabling

interaction with PSPs

(Payment Service Providers)

and customers who require

direct access to the payments

infrastructure.

All PSPs (Payment Service

Providers) to support

payments in real-time,

24x7.

Efficient

Governance

Confirmation

of Payee

Enhanced

Data relating

to payments

Simplified model and rules

for access to clearing and

settlement services for

PSPs (Payment Service

Providers)

Enabling customers to confirm the

name of the intended recipient

matches the payment routing

data (sort code & account

number and/or proxy)

before committing to send

an electronic payment.

Visibility of

payment

journey

Request to

Pay

Traceability and positive

confirmation of where a

payment is on its journey

from sender to receiver.

For example, to enable

Relevant additional

information to be added

and made available via

direct or indirect link to the

payment message. This will

enable more integration into

respective business processes.

More control over outgoing payments

for customers – enabling flexibility

over the timing of regular payments

to fit with increased money

management. More reference

information will also be

provided to help businesses

reconcile payments.

customers to know it has been

sent and if it has arrived.

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Cards per capita around the world, 2014

The fastest rate of growth of non-cash transactions is Asia and in particular China

Consumer protection in different countries

UK consumers enjoy an excellent

level of protection when it comes to

their payments and bank accounts.

Some of this is provided by

European-wide legislation, some is

domestic, (such as Section 75 of the

Consumer Credit Act on credit card

payments) and other protection is

provided thanks to payment scheme

rule protection, e.g. Direct Debit

Guarantee. UK consumers also

have recourse to a robust and well

resourced Financial Ombudsman

Service if things go wrong.

The UK’s strong position was

evidenced by a World Bank report

published in 2014. It placed the

UK in the top group of economies

surveyed, in that it has:

• general consumer protection law

• consumer protection law with

explicit reference to financial

services, and separate financial

consumer protection law

Of the 114 economies surveyed by

the World Bank, only 35 provided all

of these (31%). The report also noted

that the UK is one of the top tier

of economies that have an agency

responsible for implementing and/

or overseeing any aspect of financial

education/literacy.

Debit cards per head

Japan

3.30

China

3.28

Credit cards per head

Canada

2.16

USA

2.90

Cards

Australia

1.75

Netherlands

1.52

United Kingdom

1.48

Sweden

1.04

Australia

1.00

United Kingdom

0.88

At the end of 2014 there were

12 billion cards in circulation

worldwide, a rise of 11% on 2013. The

number of cards continued to grow

highlighting the important role

cards play globally for consumers,

businesses and governments,

providing convenience, safety and

familiarity in payment choices.

The type of card used within each

country varies greatly from debit,

credit and charge cards to prepaid

cards and multi-functional cards.

The figures opposite show that

the holding of debit and credit

cards differs significantly between

countries. The reasons behind

this are often culturally-specific.

For example, the Netherlands

and Germany tend to have little

appetite for taking on credit card

debt, preferring instead to make

more extensive use of debit cards.

In contrast, the United States tends

to exhibit a relatively high level of

credit card holding, reflecting that

country’s far higher tolerance for

taking on unsecured debt. In the

UK, debit cards are widely available

to consumers, and 93% of adults

held at least one debit card in

2014. Alongside this, 60% of UK

adults held credit cards, with the

average number of cards per adult

suggesting that UK consumers

have more of an appetite for

credit cards that their European

contemporaries in France, Germany

and the Netherlands, but far less of

an appetite compared to consumers

in the USA and Canada.

The UK was the first

country in the world to

implement the new global

technology for chip and PIN,

with roll out completing

in 2006. Some countries,

notably the USA, are still to

complete introduction of

the technology.

Russia

1.35

Germany

1.25

Switzerland

1.19

Sweden

0.98

Ireland

0.95

USA

0.94

Canada

0.70

France

0.64

China

0.33

Russia

0.22

Netherlands

0.19

France

0.10

Germany

0.06

Switzerland

0.73

Ireland

0.35

Note: Data for USA is for 2013 (latest data available) Source: ECB Blue Book, BIS Red Book

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Looking at the extent to which

consumers use the cards that they

hold, the UK is somewhere around

the middle of the range of payment

behaviour. In 2014, UK consumers

made an average of just over 200

card payments a year (including

debit, credit and charge card

payments). This is considerably less

than countries such as the USA,

Australia and Canada, where the

number of payments is around 250

per year or greater. Having said

this, the number of payments in the

UK has been growing considerably

over time, with growth of over 11%

in 2014 alone. The Netherlands

is the European country with the

most similar number of payments

to the UK, although as mentioned

above these are predominantly

debit card payments, reflecting

the unpopularity of credit cards in

the Netherlands. Germany exhibits

a far lower use of cards to make

payments, with less than a quarter

the number of transactions per

person as seen in the UK.

Average transaction values in most

countries follow a similar pattern,

in that the average value of a

credit card payment tends to be

higher than the average value of a

debit card payment. This perhaps

reflects the fact that consumers

are more likely to make use of a

credit facility in order to purchase

expensive items, and suggests that

this tendency is the same amongst

consumers in all countries.

Spending on cards in the

Netherlands provides an interesting

contrast to the UK. Whilst the total

number of debit cards per adult

is similar in the two countries, and

the number of payments made

using those debit cards is also

similar (although slightly higher in

the UK), the total amount spent on

those debit cards is significantly

lower in the Netherlands. One

possible factor behind this may

be the popularity of the iDEAL

system in the Netherlands – the

e-commerce payment system that

allows customers to pay for online

shopping using direct transfers from

their bank accounts. By contrast,

in the UK the majority of online

payments are made using cards.

More generally, card spending in

the Netherlands is concentrated on

debit cards, whereas UK consumers

also make extensive use of credit

cards to make payments.

93%

of UK adults have a debit card

60%

have a credit card

Debit cards

Debit cards are the most common

type of card held across the world,

with some countries using them for

identification purposes. In many

countries, the use of debit cards has

become so widespread that they

have overtaken or entirely replaced

cheques and, in some instances,

cash transactions. European

countries tend to be more mature

debit card markets with both the

number of debit cards in issue

and the extent of card acceptance

by businesses at very high levels.

This said, debit card holding still

increased across Europe between

2009 and 2014. The majority of

the increase in the number of debit

card transactions in Europe was a

result of customers choosing to use

debit cards over cheques and cash.

The increasing proliferation of bank

accounts that automatically issue

a debit card to account holders as

opposed to ATM‐only cash cards

may also have been a factor. The

global financial recession has led to

many consumers preferring to use

debit cards to make payments, in

order to avoid increasing their level

of debt by spending excessively on

credit cards.

On average, each UK adult held 1.5

debit cards by the end of 2014. This

compares with the EU average of

just above 1 debit card per adult.

The Netherlands has been the

long term leader in terms of debit

card holding in Europe. There are

several reasons behind this trend

including the migration from euro

cheques to debit cards; bank and

retailer campaigns to encourage

consumers to choose a card over

cash; and the roll out of a new debit

card payment system in 2012. These

initiatives have led to a substantial

decrease in cash payments.

Cardholding in countries outside

Europe is approaching, or in some

cases exceeding that seen in

Europe. In China the number of

debit cards per adult (3.3) is more

than double the number of debit

cards per adult in the UK. China had

the largest single card market in the

world in 2014 in terms of number

of cards issued, with almost 4.5

billion debit cards in circulation.

The number of debit cards in China

more than doubled between 2010

and 2014. Japan is another world

leader in terms of total debit card

holdings: on average each person

held 3.3 debit cards in 2014.

The Australian card market is

similar to the UK’s in many ways. In

Australia debit cards accounted for

64% of the total card market in 2014

and on average each Australian

held 1.8 debit cards by the end of

the year. Evolving technology, new

card products and the expansion of

online shopping gave the Australian

card market a significant boost in

the five year period between 2010

and 2014.

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Credit cards

There are many different types of

credit and charge card products

issued in European countries and the

popularity of these products mostly

depends on consumer preferences

and tradition. For example, Spain,

Germany, France and Italy have

the largest charge card markets in

the region (charge cards require

the balance to be paid off in full

each month and so avoid revolving

credit). By contrast in the UK, Ireland,

Turkey and Sweden credit cards

are much more popular – enabling

consumers to decide how to manage

repayments. Credit card use may

be incentivised by the availability of

rewards and cash back offers.

The total value of outstanding

balances on credit cards in the UK

is far greater than in other countries

(note that this is total balances, NOT

balances per person and so in part

reflects population). However, the

UK has one of the lowest revolve

rates in western Europe (that is, the

proportion of consumers not paying

off a substantial proportion of their

outstanding balance each month).

Consumers in countries such as

the Netherlands and Germany are

culturally more averse to credit, and

as such the number of cards in issue

and outstanding credit balances are

far below those in the UK.

Over the past few years the

credit and charge card sector has

remained subdued in many western

European countries as cardholders

have turned away from pay-later

products in favour of debit cards.

The UK credit card market is the

largest in Europe with approximately

one credit card per person, double

the EU average of 0.5 credit cards.

UK credit card holders account for

almost three-quarters of all EU credit

card spending. The higher holding

and usage of credit cards in the UK

when compared to other European

countries may be driven by the fact

that credit cards historically were the

first payment cards launched into

the UK market and over time have

become established as a payment

method as well as a borrowing tool.

Consumers in the UK also benefit

from additional legal protection

when they use their credit card

which does not exist elsewhere in

the world (under section 75 of the

Consumer Credit Act card issuers

are jointly liable with the retailer in

the event of any breach of contract

e.g. if the goods or service fail

to be delivered or are faulty). In

most other European countries the

first cards were debit cards which

evolved from ATM-only cards.

There was a considerable fall

in credit card holding in the UK

around the end of the last decade,

when the number of credit cards

in circulation decreased by almost

a quarter. Having said this, the

proportion of people in the UK with

at least one credit card remained

relatively constant; people just

tended to reduce the number of

credit cards they hold. The USA

remains the world leading credit

card market with nearly three credit

cards per person. Interestingly debit

card holding in the USA is relatively

low, and lies below the EU average.

Similar to the UK, credit cards were

the first card type introduced in

the USA. However, unlike in the

UK, where debit card circulation

overtook credit cards over time, in

the USA credit cards still remain the

most prominent card type.

In India, where the culture does not

promote the use of credit, the debit

card is the most predominantly held

card. The lack of a wide-reaching

and reliable telecommunications

infrastructure has also restrained the

development of a strong card market

and India still remains primarily a

cash-based economy. Although

debit card holding is gradually rising,

credit card holding has not changed

for over a decade, with one credit

card per 100 inhabitants. However,

considering that India represents

approximately one-sixth of the

world’s population, this diverse and

emerging market will likely present

significant growth opportunities for

their payments industry.

Revolve rate (%)

50

40

30

20

10

0

Proportion of credit card holders not paying off

a substantial proportion of their outstanding balance

each month, 2013

Balances outstanding ($US billions)

91 20 17 6 5 2 1

UK

Spain

Italy

Germany Sweden France Netherlands

Note that the revolve rate here differs from the most recent figures for December 2015 published by the BBA.

This is as a result of different time periods and also adoption of a different methodology that is consistent across all countries.

Source: Datamonitor Financial’s Global Payment Card Analytics

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Contactless technology on cards

The UK’s use of contactless cards

is ahead of many other countries.

Latest data on contactless usage

from The UK Cards Association

suggests that around 10% of card

transactions are now contactless.

Datamonitor publishes data on

contactless cards in 26 countries,

showing the proportion of cards

in issue that have contactless

functionality. Looking at data for

2014, the UK was in 4th place

(behind only Poland, Italy and

Singapore). The UK was ahead of

Australia, the USA, Canada, New

Zealand, France, Germany, the

Netherlands and many others.

In the UK, contactless payment

cards have the same level of

protection as chip and PIN

payments, and contain multiple

layers of security. Despite this,

consumers are sometimes hesitant

when first using the technology.

Different countries have different

security measures in place to

minimise issuers’ exposure to

fraudulent charges. For instance, in

the UK there is no daily limit on the

number of contactless payments a

consumer can make, but there is a

limit of £30 per transaction. Also,

parameters are set by the card

issuer such that, after a specified

number or value of transactions,

the card software will refuse further

contactless transactions until a

standard chip and PIN transaction

has been completed and the

counter resets. This is similar to the

procedure in Ireland.

Proportion of cards in issue with

contactless functionality, 2014

67%

Poland

62% 47% 41% 39%

Italy Singapore United Kingdom Australia

39% 28% 28% 26%

France Spain Netherlands Germany

26% 26% 25% 25%

Canada Japan New Zealand Sweden

23% 18% 14% 14%

United States India South Africa Brazil

Source: Datamonitor

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Contactless payment thresholds in US$ equivalents, 2013

Australia

Singapore

Hong Kong

United States

Canada

Brazil

France

Germany

Italy

Netherlands

Spain

United Kingdom

33.2

33.2

33.2

33.2

33.2

31.7

43.7

€25

€25

€25

€25

€25

£20

50.0

48.3

64.5

US$50

C$50

BRL100

(increased to £30

in September 2014)

78.7

HK$500

92.4

S$100

A$100

Prepaid cards

Datamonitor suggests: ‘Given that

a high level of unbanked consumers

is often a key indicator of a market’s

prepaid card potential, prepaid’s

prospects as a bank account

replacement in the UK are minimal’.

Also, it is worth remembering that

the number of cards per inhabitant

can sometimes be an insufficient

measure of the size and nature of

the market because of possible

variations in the use of cards and

the prominence of traditional

card products. For example, Italy

continues to be the largest prepaid

card market in Europe, partly driven

by the recession, as many Italians

use prepaid cards as a way to

manage their budgets and to pay

for goods and services.

Card acceptance

terminals

The UK has one of the most

developed card acceptance

networks in Western Europe. In

2014, there were 1.7 million point

of sale (POS) terminals in the UK,

a figure which is still growing,

with the number of POS terminals

increasing by 3% between 2013 and

2014. This growth suggests that

card acceptance is becoming evermore

widespread, reflecting the fact

that consumers are now more than

ever expecting to be able to use

non-cash payment methods when

making purchases, even when the

payment amount is relatively small.

The increase in POS terminals also

suggests that retailers of all sizes

are increasingly willing to accept

card payments, regardless of the

value of the payment. The falling

average transaction value of debit

card payments in the UK suggests

that these cards are increasingly

being used to make low-value

transactions that previously may

have been more likely to be made

using cash.

South Africa

20.1

ZAR200

Poland

15.8

PLN50

China Limit n/a

Japan Limit set by merchant

Sweden Limit n/a

Source: Visa, Mastercard (2013)

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Cash

Free-to-use cash

machines

In the UK, 98% of cash withdrawals

were made at free-to-use ATMs in

2014.

Experience is mixed in other

countries. Typically, withdrawals are

free at machines operated by the

customer’s own bank, but fees are

often incurred when using ATMs

provided by other companies. In

some countries, financial institutions

group together to provide fee-free

access to one another’s customers.

In Thailand, there is no fee

for domestic same-bank

same-province transaction.

However, customers usually

pay a fee for withdrawal

or balance inquiry at other

banks’ ATMs or in a province

other than the province

where the account is opened.

Number of cash

machines

The availability of cash machines

varies widely throughout Western

Europe. In 2014 Portugal had the

highest provision of cash machines

with 1,540 machines per million

inhabitants, followed by Spain

(1,086) and the UK (1,074). Sweden

has the lowest provision in Europe,

with 333 cash machines per million

inhabitants. The EU average is 960

machines per million inhabitants.

Cash machines continue to evolve,

offering services beyond dispensing

cash as consumer expectations

shift in the digital age. Due to the

cash machine network in Portugal

being a fully integrated cross-bank

network, a number of innovations

have been possible. As well as the

basic cash dispensing function,

many offer a range of other bank

related functions and services, such

as cash and cheque deposits, as

well as other services like cinema

and concert ticket purchases,

tax payments, bill payments,

and mobile phone top-ups. Cash

machines with similar functions are

also found in Spain, although there

has been a slightly greater decline

in cash machine provision than

in Portugal as electronic banking

increases.

Countries such as France, Germany,

Italy and the UK have relatively

similar patterns of cash machine

provision per million inhabitants.

The number of cash machines in all

four countries has been stable over

the past five years ranging from

800 to 1,100 cash machines per

million inhabitants.

The Scandinavian countries of

Denmark, Finland and Sweden

along with the Netherlands had the

lowest number of cash machines

per million inhabitants in 2014

ranging from 333 to 448. The most

significant fall in these countries

since 2008 was in Finland where

the number of cash machines per

million inhabitants has fallen by

a third. The limited provision and

general decline in the number of

cash machines in these countries

can be attributed to a change in

customer behaviour, and a growing

emphasis on a cashless society

in these countries. The increasing

burden of regulation along with

reduced demand for bricks and

mortar banking resulting from the

increasing popularity of online

and mobile banking has also kept

cash machine provision in these

countries low.

Post-soviet countries and countries

with rapidly expanding fledgling

banking sectors have seen some of

the greatest gains in cash machine

estates. The main examples of

this are Brazil, Russia, India and

China (the ‘BRIC countries’). These

four countries offer a less uniform

provision of cash machines to their

inhabitants than the countries of

Western Europe. In recent years

India has shown a significant

increase in cash machine provision,

with the number of machines per

million people more than doubling

between 2010 and 2014. Growing

use of banking services by India’s

population is expected to increase

the demand for more convenient

methods of accessing cash. Brazil

has seen less change during this

period than other BRIC countries,

due to its more mature banking

industry, which means that cash

machines have been common for

many years. In 2014 Brazil had

892 cash machines per million

inhabitants, broadly similar to the

EU average.

In India, you can make

religious donations through

ATMs that large banks have

installed in many temples.

Use of cash machines – volume of withdrawals

The number of cash withdrawals

per adult depends more on

the population’s spending and

budgeting habits than the number

of cash machines provided. The

UK population makes heavy use of

cash machines despite having only

slightly more cash machines than

the EU average.

Cash machines in Belgium and

Portugal are also well used, with

these two countries showing

relatively high numbers of

withdrawals per adult. Italian

adults make on average a third

of the number of withdrawals

made by UK adults – visiting cash

machines less than once a fortnight.

Despite extensive provision of cash

machines in Italy, many Italian adults

still do not hold a plastic card for

withdrawing cash from a machine,

although this number is increasing.

Few transactions per head are

seen in the Scandinavian countries.

While these cash machines are

relatively well-used by customers,

individuals make only around thirty

transactions per year.

Whilst Germany has just over half

the number of withdrawals as the

UK, the average transaction value

is approximately double that of the

UK. Italy had the lowest number

of withdrawals in 2014, however

they also had the highest average

transaction value. The higher

average transaction values in

these countries may be attributed

to lower debit card penetration

and card accepting businesses in

these countries compared to other

western European countries.

The number of ATMs in the

UK reached 70,180 in July

2015, surpassing 70,000 for

the first time – of which over

50,000 are free-to-use.

16 World Class Payments – a report on how consumers make payments around the world

World Class Payments – a report on how consumers make payments around the world 17


Automated payments

Direct Debits

Direct Debits are mainly used to pay

regular bills. The average number of

Direct Debits per inhabitant in the

UK is above the EU average. The

highest number of Direct Debits per

inhabitant of any of the European

countries is seen in Germany, with

the number of Direct Debits per

inhabitant being twice as high as

the number in the UK. A significant

proportion of these payments in

Germany are made by businesses,

with Direct Debits the most widely

used payment instrument. This is in

contrast to the UK where businesses

do not use Direct Debits to make

payments as frequently, with Direct

Debits being predominantly a way

for consumers to make payments.

German retailers are also able to

use the account details on a debit

card to initiate a Direct Debit at the

point of sale, which the customer

authorises by signature. This is a

popular method for retailers to

receive payment as it is cheaper

than a card transaction authorised

by a PIN.

The Netherlands also have a high

level of Direct Debit use, just slightly

above the level in the UK. Banks

in the Netherlands offer several

types of Direct Debit providing for

specific needs (for example, there is

a debit used for purchasing lottery

tickets, which unlike the UK has no

payback guarantee). In France, it

is mandatory to pay utility bills by

Direct Debit. This perhaps explains

the wide use of this payment

method; however, large corporates

do not have to pay this way, and

tend to avoid using Direct Debits in a

similar way to their UK counterparts.

In the EU, growth of Direct Debits

per capita in recent years has

been greatest in countries such as

Germany and Belgium.

Some of the differences in usage

between countries could arise as

a result of differences in how easy

it is to set up a Direct Debit, legal

rules surrounding their use, or costs

to billers of using this method of

payment collection.

Whilst the ‘BRIC countries’ (Brazil,

Russia, India and China) have all

experienced significant economic

growth over the past decade, their

use of Direct Debits varies.

In Brazil, Direct Debits are a wellestablished

payment method and

are normally used for recurring

payments such as utility bills. The

number of Direct Debits per capita

in Brazil has grown considerably

in recent years, with growth of 11%

in 2014 alone. This growth may be

attributed in part to the introduction

of the so-called ‘Authorised Direct

Debit’ which allows creditors to

present electronic bills to debtors,

which can then be paid either by

Direct Debit or by an individual

credit transfer.

Direct Debit use is far more limited

in the other BRIC countries. In India

for example use is very limited, but

starting to grow – Direct Debits

in India have the advantage for

the payer that they can set a

ceiling on the amount that can

be debited from their account for

any particular type of payment. In

Russia Direct Debit use per capita

appears to have actually declined

in recent years, standing at only

0.6 payments per capita in 2014.

120

Number of Direct Debit payments per inhabitant, 2014

69

57

54

47

45

38

33

28

21

15

10 10

7

0.6 0.2

Germany Netherlands United

Kingdom

France Belgium United

States

Australia Sweden Brazil Canada South

Africa

Singapore Italy Switzerland Russia India

Note: Data for Germany relate to 2013. Data reflect all payments (consumers and businesses), not just those made by consumers

Source: BIS Red Book 2015

18 World Class Payments – a report on how consumers make payments around the world

World Class Payments – a report on how consumers make payments around the world 19


Electronic credits

Whilst use of credit transfers is

widespread throughout Europe,

there are differences in the level

of use of electronic credits, in

spite of the maturity of this

payment method.

Due to different payment

preferences there is variation of

one method over another, whereby

a country with a low level of

Direct Debits has high volumes

of credit transfers. An example of

this is Sweden where wider use of

electronic credits than of Direct

Debits arises as a result of the

popularity of two retail payment

systems, Bankgirot and PlusGirot.

These systems are jointly responsible

for over 90% of non-cash payments

made by Swedish companies and

households. The majority of Swedish

companies hold accounts with

both systems, and in recent years

have increasingly adopted the use

of electronic invoices. Businesses

submit their payment orders almost

exclusively by electronic media,

whilst households are increasingly

using internet banking to initiate

payments.

The Netherlands has a high usage

of both electronic credits and Direct

Debits. This can be attributed in

part to Dutch domestic debit cards

not being able to be used online.

Rather, online payments use a

specialised method called iDeal.

This enables payments to be made

directly from the customer’s bank

account to the bank account of the

online retailer. As well as the use of

electronic credits by households,

almost all remote payments

between Dutch businesses are

made in the form of credit transfers.

The Netherlands and Sweden both

have relatively mature markets for

electronic credits. In other countries

the level of electronic credits

per capita are lower; however,

most countries have seen recent

growth in electronic credit use. In

the USA growth has been driven

by consumers moving away from

using cheques to pay regular bills

and towards internet-based bill

payments. Even where cheques

are still used to make payments,

the introduction of image-based

cheque processing in the USA has

resulted in many of these cheque

payments being converted into

automated credit payments by

merchants and billers following

receipt of the cheque.

The UK makes extensive use of

direct credit payments which are

often salary payments, with the

number of payments per capita

being double the number seen in

the USA or Canada. The UK also

benefits from having a near realtime

payments system – Faster

Payments. When Faster Payments

was introduced in the UK in 2008 it

was the first new domestic payment

scheme to be launched in 20 years.

It is a near real time system enabling

internet and phone payments to be

made 24 hours a day, seven days

a week. The table overleaf shows

when real-time payment systems

were launched in different countries

around the world. It also shows

operating hours for those services

that do not operate 24-7 – notably

many only operate during business

hours. The UK was the fourth

country in Europe to launch such a

real time service, although services

in Turkey and Iceland are not 24

hours – which means the UK is the

second European country with a

full 24-7 service. Several countries

(notably the USA) are developing

and introducing similar immediate

payment systems.

Number of credit transfer payments per inhabitant, 2014

Belgium

Netherlands

Switzerland

Sweden

Germany*

Australia

United Kingdom

Brazil

France

United States

Canada

Italy

Russia

22

20

South Africa 13

Japan 12

Singapore 7

China 2

India 1

122

121

117

99

77

76

61

53

52

30

29

*Note: Data for Germany relate to 2013. Data reflect all payments (consumers and businesses), not just those made by consumers.

Source: BIS Red Book 2015

20 World Class Payments – a report on how consumers make payments around the world

World Class Payments – a report on how consumers make payments around the world 21


Timeline of real-time payment systems across the world

2010

2014

Asia, Australia and Africa

IBPS

China introduced

real-time payments

in 2010

FAST

Singapore introduced

real-time payments

in March 2014

IMPS

India introduced

real-time payments

in 2010

1973

1995

2001

2006

2011

2017

Zengin

(operates 08.30–16.40)

Japan was the first

country in the world to

implement real-time

payments

CIFS

Taiwan was the second

country in Asia to

implement real-time

payments

HOFINET

South Korea was the

third country in Asia to

implement real-time

payments

RTC

South Africa was the

first African country to

implement real-time

payments

NIP

(operates 08.00–17.00)

Nigeria introduced

real-time payments

in 2011

Australia

1990 2000

2010 2020

1987

1992 2000

2004

2008

2012

2018

SIC

Switzerland was the

first country in the

European region to

implement real-time

payments

TIC-RTGS

(operates 08.30–17.30)

Turkey was the second

country in the European

region to implement

real-time payments

Greisöluveitan

(operates 09.00–16.30)

Iceland was the third

country in the European

region to implement

real-time payments

SPEI

Mexico was the first

country from North

America to implement

real-time payments

TEF

Chile was the second

country in South

America to implement

real-time payments

Express Elixir

Poland implemented

real-time payments

in 2012

SEPA

North America,

South America and Europe

2002

SITRAF

(operates 07.30–17.00)

Brazil was the first

country in South

America and among

BRIC nations to

implement real-time

payments

Faster Payments

The UK was the fourth

country in the European

region to implement

real-time payments

BIR

Sweden implemented

real-time payments

in 2012

2014

Nets

Denmark implemented

real-time payments

in 2014

TBC

USA

TCH real time payments

service to go into

production in 2017, with

a launch date to be

confirmed. Bank

participants may run

pilots before launch.

22 World Class Payments – a report on how consumers make payments around the world

World Class Payments – a report on how consumers make payments around the world 23


Cheques

Number of cheques per inhabitant, 2014

Cheques and paper credits are used in many major

economies around the world. Data for a range of EU

countries as well as Canada, Australia and the USA are

presented opposite. Standalone paper credits (also called

paper giros) are included, having long been used in various

northern European countries to pay invoices and bills in

place of cheques.

The general trend in all markets

is for a shift away from cheques

to electronic payment methods.

However, there is still considerable

variation in cheque use across

the countries examined with

the rate of decline varying from

around 10% per annum in the UK,

Australia and Sweden to around

5% in France, Italy, Canada and

the USA. This decline can mainly

be attributed to more people

using other payment methods

such as Direct Debits, automated

credits or card payments to pay

regular bills such as rent, insurance

premiums and utility bills. There

are also a declining number of

retailers and businesses across all

countries (including the UK) who

are still willing to accept cheques

from consumers for everyday

transactions.

Over the past few years cheque

use in the UK has been consistently

declining and this trend continues.

As a result the UK is in the middle

of the group of countries surveyed

in terms of the volume of cheques

written per capita. Whilst cheques

mostly remain free of charge to

personal customers in the UK,

more people are choosing to use

electronic bank-to-bank transfers,

particularly initiated through

online banking. Online payments

are popular due to their perceived

convenience such as the ability

to set up standing orders and to

make immediate or forward-dated

payments at any time. Many utility

companies in the UK offer discounts

to customers who pay by Direct

Debit (which offers the payment

recipient certainty of payment date

and lower processing costs) as

opposed to other methods such as

cheques.

Since 2001, there have been more

electronic payments than cheque

payments made by UK businesses.

Despite this, there remain a small

number of businesses who are

unwilling to provide their bank

details to enable customers to make

electronic payments to them: either

because they do not wish to be

burdened with checking their bank

accounts to reconcile payments to

them; or because they are unable/

unwilling to become accredited

receivers of Direct Debits. These

businesses tend to be smaller

service-providers such as sole

traders, as well as small shops and

schools. They continue to receive

cheques and value them for the

flexibility they offer.

United States

France

Canada

Singapore

United Kingdom

Australia

Brazil

Italy

4

7

6

India 1

Japan 0.5

South Africa 0.4

China 0.4

Germany 0.4

Belgium 0.3

Sweden 0.002

10

13

18

38

45

*Note: Data for Germany relate to 2013. Data reflect all payments (consumers and businesses), not just those made by consumers.

Source: BIS Red Book 2015

24 World Class Payments – a report on how consumers make payments around the world

World Class Payments – a report on how consumers make payments around the world 25


At the top end of the spectrum

the USA still makes extensive use

of cheques. Nevertheless, the total

number of cheques written in

the USA has been declining over

the past few years, with a decline

of almost 40% in the number of

cheques per inhabitant between

2010 and 2014. This trend has

been supported by the long-term

migration of state benefits from

cheques to other methods of

payment. More cheques are also

being converted into electronic

payments processed through the

Automated Clearing House (ACH)

system. The US payments industry

has made considerable investment

into automation in recent years,

focusing on improving efficiency

through cheque imaging rather than

the clearing of paper cheques. Due

to this the number of cheques being

physically paid into banks is falling

more rapidly than the number

of cheques being written. ACH

rules prevent high-value cheques

being converted into electronic

payments using image-based

processing, which means that the

average value of cheques paid in

as electronic images is significantly

lower than the average value of

physical cheques deposited. A high

percentage of business-to-business

invoices are still settled using

cheques. Migration to electronic

payments is perhaps hampered by

the lack of a real-time electronic

payments system in the US.

Cheque use is lower in Canada

than the US and continues to

decline rapidly, with payments

instead being made as Direct

Debits or direct credits processed

as Automated Funds Transfers

(AFTs). Previous government

cheque payments, such as benefit

payments, are now paid directly

into the payee’s bank account.

There is also a strong drive to

encourage businesses to switch

from cheques to direct deposit.

Cheque transactions have dropped

by a third between 2010 and 2014.

In Australia, cheque volumes have

fallen by around 46% over the

last five years and are forecast to

decline further. However measures

have been put in place to ensure

that cheque users can still benefit

from and participate in the

emerging digital economy.

Similar to many other European

countries, cheques are rarely used

in Germany. The role of cheques in

Germany has decreased as debit

cards have become more popular.

As a result there were just 0.4

cheques written per capita in 2014.

This can partly be attributed to

corporate cheques being banned

since 2002, with only a very small

number of personal cheques

being used. A number of regular

payments, such as rent and wages,

traditionally use direct transfers

rather than cheques. Invoices are

often accompanied by pre-printed

paper credits, or Überweisungen,

which show the payee’s account

details and the amount payable.

These are submitted by the payer

in a bank branch, after which the

bank will transfer the required

amount. It is also common to

allow the payee to automatically

withdraw the requested amount

from the payer’s account, known as

Lastschrifteinzug.

The history of the cheque

dates back to the 13th

century in Venice when

the bill of exchange was

developed as a legal device

to allow international trade

without the need to carry

around large amounts of

gold and silver.

Cheque imaging across the world

In the UK the Cheque & Credit

Clearing Company is currently

developing plans to increase

convenience and cheque clearing

speed for customers and deliver

efficiency in cheque processing

by moving to a system based on

images of cheques (rather than

transport of the physical cheques as

at present). However, image-based

processing systems have existed

in other countries for a number of

years. The USA, Germany and much

of the rest of Europe, India, China

and some other Asian countries

have image-based processes in

place. A selection of these are

summarised here.

USA: The USA enacted the ‘Check

21 Act’ in 2003, allowing an

electronic ‘substitute cheque’ to be

created from the cheque’s image

for the purposes of processing,

eliminating the need for further

handling of the physical document.

Since then, processing has gradually

transitioned from paper cheques

to electronic images, with almost

70% of all institutions receiving

images as of January 2013. The FED

states that ‘by shifting to electronic

collection and presentment, the

Federal Reserve reduced its per

item cheque processing cost by

over 70%’.

Germany: An image-based cheque

collection procedure was introduced

in Germany on 3 September 2007,

with the process being managed

by the Bundesbank. This has

significantly reduced the costs

and also the time required for

cheque clearing.

India: Under the Negotiable

Instrument Act, 1881, cheques had

to be presented physically to the

bank branch on which they are

drawn. The Act was amended in

2001 to allow scanned cheque

images, paving the way for the

cheque truncation initiative that

went live in February 2008 in the

New Delhi region. Another cheque

truncation project is planned for

Chennai in south India.

Singapore: Banks in Singapore

use the Cheque Truncation System

(CTS), an online image-based

cheque clearing system introduced

in 2003. Cheques are scanned

into CTS when deposited at the

bank, and their electronic images,

rather than the physical cheques,

are then transmitted through the

clearing cycle. Cheque format is

standardised in this system.

Sweden: The use of cheques in

Sweden is very limited. All cheques

are truncated, that is, the presenting

bank retains the physical document

and the information is transmitted

by electronic media to the drawer’s

bank.

China: Launched in June 2007,

CIS is a cheque truncation system

supporting the use of cheques

nationwide. It converts physical

cheques into images, and then

transmits the cheque image

and related information to the

drawer’s bank.

26 World Class Payments – a report on how consumers make payments around the world

World Class Payments – a report on how consumers make payments around the world 27


Mobile payments

The creation and expansion of the internet has opened

up opportunities for payments innovation, as has the

growth of mobile networks. Across the world, the recent

proliferation of smartphones has also been a significant

driver of innovation in payments.

Smartphones support more advanced

applications and in so doing, have

encouraged the development of both

mobile banking and mobile payment

services. Research shows that

smartphone users, including those in

the UK, lead the way in adopting and

using mobile payment technologies.

The term ‘mobile payments’ is used

to refer to various services that take

advantage of the new and emerging

mobile technology that has become

ubiquitous in recent years. These

services include:

• Person-to-person (P2P)

payments made using a mobile

device (typically using an app or

a text-message based system)

• Contactless payments, using the

mobile device as a conduit to

initiate a contactless card transaction

• m-commerce, using the mobile

device as a method to conduct

online shopping, paying for goods

with whatever payment method

the customer prefers (typically

cards, possibly hosted in a mobile

wallet). This can also be used to

make an in-app payment to pay

for something in a physical store,

using the consumer’s device as a

‘mobile checkout’

There are also many other types

of services that can be delivered

using mobile technology, but we

will limit our discussion to these

three key categories.

P2P payments

The latest and potentially most

revolutionary innovation in mobile

payments, is in the form of P2P

payments via a mobile device. For

a number of years, individual banks

have enabled their customers to

initiate payments from their mobile

banking apps. However, Swish in

Sweden and Paym in the UK have

now been developed to provide

cross-industry services in their

respective countries that provide

a common service to customers of

all participating banks. In particular,

Paym has the advantage that

payments can be directed using just

the mobile phone number of the

payment recipient, rather than the

payer having to know the recipient’s

account number and sort code.

At the end of 2015, more than 3.2

million customers had registered

to receive payments via Paym

(although anyone using mobile

banking services via a participating

financial institution can send

payments via Paym).

Both of the services in Sweden

and the UK are underpinned by

payments infrastructure, which not

only allows for the easy transfer

of money, but settles the payment

made between accounts almost

instantaneously. In both cases it is

cross-industry collaboration that

has resulted in delivery of this

infrastructure and the subsequent

development of other cross-industry

initiatives that benefit the customer.

The Faster Payments Service and

LINK payment schemes in the

UK and BiR in Sweden provide

the infrastructural foundation to

enable customers to make mobile

payments almost instantaneously

and to exercise control of their bank

balances, as they are able to see

what has gone in and out of their

accounts in real time without having

to deal with the uncertainty of

knowing when outgoing payments

will be deducted. Also, despite

being delivered on a cross‐industry

basis, mobile payment services

such as Paym and Swish allow

the participating institutions to

differentiate their services in other

ways, stimulating competition in

the market.

Mobile payment options naturally

reflect market need, but also

the range of existing payments

infrastructure including for example

limited bank branches in rural areas,

as well as customer appetite for,

and increasing use of, smartphones.

In Kenya where 40 per cent of the

population are unbanked, M-Pesa,

which offers customers an SMS

based, person-to-person mobile

payment service, has taken off

and been adopted by more than

two-thirds of the adult population;

a rate that far surpassed initial

predictions. The first year user

target was met after just four

months; helping the service to both

fuel economic development and

contribute to improving financial

inclusion in the country.

The success of M-Pesa underlines

the importance of mobile payment

services being designed with

the needs of customers in mind.

M-Pesa’s success is undoubtedly

influenced by the fact that the

service was specifically developed

Two thirds of people in the UK

now own a smartphone, using

it for nearly two hours every

day to browse the internet,

access social media, shop

online and do their banking.

for emerging markets where

there are a significant number

of unbanked individuals. M-Pesa,

unlike Paym, does not require you

to have, or is not linked to, a bank

account and is run by a mobile

phone company and not through a

payment clearing scheme.

Beyond these examples, mobile

P2P payment services also exist in

countries including the USA, India

and Japan. However, the UK’s Paym

service has a number of benefits

over the services offered in these

other countries:

• For P2P mobile payment services,

the UK and Japan operate the

only free-to-use systems (Swish

in Sweden is free for the first year

but charges thereafter)

• The UK provides one of the

fastest services (for example,

the P2P service in the USA takes

1–3 business days to complete

the payment)

• Paym in the UK is the only

service surveyed that enables

payments from consumers to

businesses (SMEs are allowed

to use Paym)

28 World Class Payments – a report on how consumers make payments around the world

World Class Payments – a report on how consumers make payments around the world 29


Contactless payments

The development of Near Field

Communications (NFC) technology

has been another key driver of

payments innovation in a number

of markets. Japan’s mobile

payments market is largely based

on contactless technology and there

are plans by companies already

active and successful in Japan

such as NTT Docomo to expand to

other countries. Companies beyond

traditional payment service providers

have found themselves ideally placed

to develop innovative services;

these include telecommunications

operators (including NTT Docomo)

and the manufacturers of mobile

devices and software, such as Apple,

Samsung and Google.

The UK’s rapidly-developing market

for mobile payments has made it

a key location for the launch and

development of services that allow

mobile devices to be used to initiate

card payments. In particular, the

transport sector has been fertile

ground for contactless technology

around the world, as transport

operators seek to cut queues

and enable flexible pricing. The

launch of contactless payments on

Transport for London services is one

example of how the introduction of

contactless payments on a major

transport network can lead to

increased uptake and use of mobile

payments in the wider economy, as

consumers become more familiar

with the technology and start to

use contactless payments in other

environments (such as retail stores).

The UK was the first country

outside the USA in which Apple Pay

services were launched. This service

operates with the most recent

mobile devices sold by Apple,

and facilitates contactless card

transactions at the point of sale

(as well as in-app purchases made

using the device). Apple Pay is

accepted on Transport for London

and at many retailers who already

have technology in place to accept

contactless card payments.

Samsung Pay, a similar service to

Apple Pay offered via Samsung’s

mobile devices, is also expected to

launch in the UK soon, following

its initial launch in South Korea in

August 2015 and its expansion to

the USA in September 2015. It is to

be expected that Google’s Android

Pay service will not be far behind.

m-commerce

UK consumers are showing great

willingness to use their mobile

devices to conduct banking and

shopping activities. In 2014, 29% of

UK consumers used mobile banking

services at least once a month. UK

consumers spent £175 billion online

in 2014, and approximately 37% of

these online card transactions were

completed via a smartphone or

tablet. As technology becomes more

widespread and consumers become

ever more comfortable with using it,

it is to be expected that the number

of payments initiated via mobile

devices will continue to increase.

At present, the majority of these

payments in the UK are underpinned

by the card payment schemes.

This is in contrast to countries such

as the Netherlands, where online

services allow consumers to pay at

the online checkout by initiating an

electronic transfer directly from their

bank account to the retailer’s bank

account. Similar services could be

expected in the UK as the European

Payment Services Directive 2 comes

into force, permitting third party

providers to develop and offer these

services online.

30 World Class Payments – a report on how consumers make payments around the world

World Class Payments – a report on how consumers make payments around the world 31


Once a quiet corner of the financial world, the

payments industry is transforming like never

before. Technological advances, new players

to the market, fresh regulation coupled with UK

customers’ appetite for more convenient and

improved services mean that change is inevitable

and there is enormous potential for the UK

payment markets to continue to lead the way.

Payments UK is the trade association launched in June 2015 to support the rapidly evolving payments

industry. Payments UK brings its members and wider stakeholders together to make the UK’s payment

services better for customers and to ensure UK payment services remain world class.

Payments UK

2 Thomas More Square London E1W 1YN

T: 020 3217 8200

E: worldclasspayments@paymentsuk.org.uk

paymentsuk.org.uk

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